As we look ahead at the American economy in 2011 and beyond, I see good things. In fact, I would argue that the best is yet to come. Large, global manufacturing firms and exporters such as Caterpillar, Intel and Boeing were already back to 2007 production levels in 4th Quarter 2010.
Major exporters have started to recover as the rest of the world recovers. We will harness our own domestic energy sources, mostly natural gas.
Entering 2011, there are six unstoppable trends that are impacting our world, our economy, our industry and our businesses.
Trend 1: Poverty Is the Natural Condition
The natural state of the world is poverty. Even today, much of the world lives in poverty, particularly in inland tribalistic cultures in parts of Africa and South America. I’m not one to say anyone’s culture should be any different, but these cultures do not value productivity and will not break out of the trend of poverty anytime soon. Poverty will always be with us.
Trend 2: Wealth Creation
It might seem counter to Trend #1, but I believe we will end the 21st century much different than the 20th. The 20th century ended with a majority of the world in poverty; the 21st will end with most people in wealth. Why? Well, never before have we had an Internet. The printing press made us all readers, radio made us all listeners, television made us all viewers and the Internet makes us all producers. Even children can get the information of the world right at their desks. When you have information, you have wealth. The Internet makes the planet the relevant market. There’s just no way to describe what kind of wealth creation is going to come to people because of the Internet. And the beautiful thing about wealth is, when other countries do better, we do better.
Trend 3: Rise of the Indian Ocean
The world’s balance of economic power used to be along the Atlantic Ocean because the power was in Europe and the United States. Then it moved to the Pacific Ocean with the United States and Japan. As we move into the 21st century, the power increasingly will be along the Indian Ocean. There are 37 countries that circle the Indian Ocean, including China and India. That is not to say that the Atlantic and Pacific Oceans—and therefore, the United States—won’t be very important. But the growth right now is around the Indian Ocean.
Trend 4: Recessions Are Natural
We’ve had 13 recessions in the last 80 years. Recessions are not new. Most people like to break the recent recession down to greed. But that’s not the case. No, it was the result of faulty monetary and fiscal policies and legislation like the Community Reinvestment Act. It was the result of Fannie Mae/Freddie Mac guaranteeing $2.5 trillion worth of loans and building too many houses. Even so, recessions are part of the normal economic cycle.
Trend 5: Recoveries Follow Recessions
As I mentioned, large, global exporters are al-ready recovering. Who, then, will be the laggards? Unfortunately, it will be the small, local, labor-intensive firms in the service sector. Why is it happening that way? Because when we got to 2007, we discovered that Americans were not saving. Our savings rate was zero. We already have our savings rate up to six percent. People are not spending money, and it’s the small, local, labor-intensive service areas that have been hit hardest. They probably think life will never be the same again, and they’ve had to make enormous adjustments, but 2011 will be the first year that will start to look better.
Another factor was home prices. About 80 percent of the entrepreneurial startups in America come from the second mortgage on a home. You don’t do a second mortgage without having a first mortgage. When the housing market took a hit, it just sucked the collateral right out of the economy, mainly from that small, local, labor-intensive service sector. Now those issues are settling out and we’re going to find a new normal.
Trend 6: Where America?
Many countries are starting to understand trade, tariffs and taxes. The essence of economics is incentives. Incentives matter. When you reward an economic activity, you get more of it. When you penalize an economic activity, you get less of it. You encourage incentives with lower taxes, not with higher taxes. Much of the world is figuring that out. Of the 13 Eastern European countries, 9 have gone to a 15 to 20 percent flat tax.
In America, we have tax and health care uncertainty hanging over us like a weight. That’s why $2 trillion sits in the cash accounts of American firms. That cash wants to be released. Certainty in our economic policy will help that. The heartbeat of America is manufacturing and entrepreneurship, and we need policies that will make it easier, not harder, for these sectors to succeed in business.
How the world responds to these trends will determine what the future holds for us all.
|Meet the Author
Barry Asmus, Ph.D., is a senior economist with the National Center for Policy Analysis. He is headquartered in Phoenix, Arizona, and on the Web at www.barryasmus.com.